HealthEquity blog

Healthcare reform legislation

HSAs: The common ground

While lawmakers struggle to come to an agreement on healthcare, one thing remains clear: Health savings accounts (HSAs) have a major role to play. Provisions being considered would strengthen HSAs now and make them an even more effective way for individuals to prepare for the burden of healthcare expenses in retirement.1

Contributions and tax savings

Increased limits

One proposed provision with significant impact would almost double the annual HSA contribution limits. For HSA-eligible individuals, this would mean greater potential tax savings and an increased opportunity to better prepare for healthcare costs in retirement. Recent reports estimate that the average 65-year-old couple retiring today will need over $320,000 to cover health expenses in retirement.2

Spouse catch-up contributions

Lawmakers have also proposed provisions to allow for a spouse to make a catch-up contribution to the account. This would greatly simplify the process for couples who today are required to establish a separate HSA for their spouse in order to save that additional amount.

Greater flexibility

Earlier establishment of the account

Another proposed change would help HSAs provide additional security by allowing the establishment date of the account to be 60 days prior to the date it is opened. HSAs can only be used to pay for qualified medical expenses after the effective date of the account, so this would allow for greater flexibility in some cases.

State trust laws define when an HSA is established, with most states recognizing the account as being established on the date it is opened. HealthEquity HSAs benefit from the favorable provisions of Utah trust laws, which recognize an HSA as being established on the effective date of the qualified health plan coverage.

Over-the-counter drugs

The Affordable Care Act limited reimbursement for medicines or drugs to prescribed drugs and insulin. As a consequence, the cost of over-the-counter drugs cannot be purchased or reimbursed with an HSA (or other health reimbursement arrangements like FSAs). Proposed changes would remove this limitation.

Reduced penalties

Lawmakers have also proposed reducing the penalty for non-qualified distributions out of an HSA from 20% to 10%. This could reduce consumer hesitation about contributing to an HSA and would align the penalty rate with other tax-advantaged accounts like IRAs and 401(k)s.

Conclusion

Employers across the nation are offering HSA-qualified health plans to their employees in greater numbers every year. They recognize the added value HSAs provide and policymakers are taking note. The positive changes being proposed now will help establish HSAs as an important part of health and retirement planning for the future.